UPDATE 3-GE beats diminished profit expectations, trims cash flow target

(Adds analyst comment, background on GE strategy, updates shares)

July 20 (Reuters) - U.S. industrial conglomerate General Electric Co reported a smaller-than-expected drop in quarterly profit on Friday as weakness in power and renewables energy offset gains in its aviation, oil and gas and healthcare units.

GE cut its annual cash target to $6 billion from a range of $6 billion to $7 billion, but affirmed its full-year adjusted EPS target of $1.00 to $1.07 a share.

GE's adjusted earnings, which exclude certain pension and restructuring costs, fell 10 percent to 19 cents a share, from a restated 21 cents a year ago.

The result beat analysts expectations of 17 cents a share, according to Thomson Reuters I/B/E/S. Analysts had cut estimates after GE's weak first-quarter results.

While the cash target cut raised concerns, GE produced better-than-expected adjusted profit and there was no bad news so far about ongoing accounting investigations, a shareholder lawsuit and a federal inquiry into subprime mortgage activity.

"They didn't screw up," said Nick Heymann, analyst at William Blair, while noting that cash flow fell short and adding, "this was a quarter driven entirely by aviation and healthcare."

The stock was up 1 percent at $13.88 in pre-market trading.

A decade and a half ago, GE was the worlds most valuable public company. But the 126-year-old company foundered in several industrial markets in recent years, and its move into financial services steered it into the eye of the global financial storm in 2008.

Last month, Chief Executive John Flannery announced a long-awaited breakup plan that will see it spin off healthcare and sell its 62.5 percent stake in Baker Hughes over the next three years.

GE was removed from the Dow Jones Industrial Average in June, ending more than a century on the blue-chip index.

Its shares have dropped 49 percent in the past year. Though investors are still interested in GE, many want to see the power and capital units stabilize and even improve before buying the stock, analysts have said.

Losses widened at GE Capital, the company's financing arm, to $207 million compared with a loss of $172 million a year ago.

Power unit profit fell 58 percent in the quarter, to $421 million from $994 million, as orders fell 26 percent to $7.4 billion.

GE's earnings from continuing operations attributable to GE shareholders fell to $736 million, or 8 cents a share, in the second quarter ended June 30, from $1.03 billion, or 12 cents a share, a year earlier. Total revenue rose to $30.1 billion from $29.1 billion.

Analysts had been looking for higher cash flow to convince them that GE can hit its adjusted free cash flow target of $6 billion to $7 billion for the year. Adjusted free cash flow from industrial activities swung to a positive $258 million in the quarter from a negative $1.7 billion in the first quarter.

(Reporting by Alwyn Scott in New York and Rachit Vats in Bengaluru Editing by Saumyadeb Chakrabarty and Nick Zieminski)